Sinopec Shifts Global Oil Assets to State Buyers Amid Downturn

  • SIPC unit bought stakes in Syncrude, Apache, Repsol holdings
  • Low crude price seen devaluing assets, hindering sale efforts

One of China’s biggest oil and gas explorers found a buyer for its oil assets from Canada to Kurdistan amid a collapse in energy prices and a drive to reform state-run firms: another government-owned company.

China Petrochemical Corp., Asia’s biggest refiner known as Sinopec Group, sold to two state investment vehicles more than half of a unit that holds its overseas assets. Shifting ownership of properties across the energy supply chain into other government-run companies is becoming more common in China in anticipation of broader industry reforms, according to Tian Miao, an analyst at North Square Blue Oak Ltd., a China policy research company.

“Only the state-owned asset companies have the capacity and money to merge and reorganize them,” Tian said. “Those overseas projects bought at high oil prices years ago may have lost massive value in this low oil price environment.”

Brent crude, the global benchmark, has lost more than 60 percent in the past two years. In addition to cratering energy prices, China’s oil industry is under pressure from President Xi Jinping’s broader efforts to revamp the country’s bloated government sector and introduce market-oriented reforms.

The unit, Sinopec International Petroleum Exploration & Production Corp., acquired many of the properties when oil was above $100 a barrel and is now challenged to find buyers, according to James Hubbard, a Hong Kong-based analyst at Macquarie Capital Securities Ltd.

Overseas Acquisitions

“No company would buy those assets at anything but a small fraction of what Sinopec Group paid for them,” Hubbard said. The assets “have book values that are far in excess of anything Sinopec’s listed company would pay without destroying vast amounts of shareholder value.”

China’s biggest oil and gas companies, which include Sinopec Group as well as China National Petroleum Corp., spent nearly $119 billion on energy deals from 2009 through 2013, accounting for 13 percent of global transactions in the industry, data compiled by Bloomberg show.

The overseas assets SIPC held for Sinopec Group include the $3.1 billion stake it bought in Apache Corp.’s Egyptian operations in 2013 and its $4.65 billion share in Syncrude Canada Ltd. in 2010. It also took over Canadian explorer Daylight Energy Ltd. for $2.1 billion in 2011. Oil prices averaged more than $100 during those years.

Reform Holdings

SIPC also holds assets Sinopec Group picked up from Addax Petroleum Corp., for which it agreed to pay C$8.3 billion in June 2009, and a $7.1 billion chunk of Repsol YPF SA’s Brazilian unit bought in 2010. It also owns projects in Russia, the Middle East and Africa, according to its website. SIPC will retain operational control of the assets after the deal, it said in a statement Friday.

SIPC sold the stakes to China Chengtong Holdings Group Ltd. and China Reform Holdings Corp., without providing a value for the transactions. The statement Friday announcing the deal said ownership will be split into two 30 percent stakes and one 40 percent share, without providing details. A Sinopec Group spokesman was unable to clarify. Neither China Chengtong Holdings nor China Reform Holdings responded to requests for comment.

China Reform Holdings was involved in a separate shift of assets in November, when it bought a 50 percent stake in PetroChina Co.’s Trans-Asia Gas Pipeline Co. for $2.4 billion as the the state-owned explorer tried to raise money to meet year-end profit targets.

Sinopec Group’s international units produced 49.86 million barrels of crude in 2014, or about 14 percent of its total 360.7 million barrels output, according to its 2014 annual report.

— With assistance by Sarah Chen, and Guo Aibing

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